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Lightning Network
Basics * A Second Layer payment service on top of Bitcoin. The Lightning network proposes to reduce transaction costs for Bitcoin by allowing nodes to hold some transaction data in the cache before submitting it to the chain. * There are three main lightning network implementations: Acinq’s Eclair, Blockstream’s c-lightning, and Lightning Lab’s lnd. * The specs of LN passed a security test done by two scientists (one from IOHK) * "Bitcoin Lightning network has reached 4,070 nodes and a ₿338.76 capacity; according to data from 1ML the network now houses 11,448 open payment channels; the average capacity for each node and payment channel comes in at ₿0.114 ($633) and ₿0.019 ($107) respectively, and with transaction fees at 1 satoshi (~ $0.000056); the average age of each node is just 137 days old." Tech Watchtowers * Uses something called Watchtowers. From the Bitcoin Optech Newsletter #76 (11-12-2019): "Watchtowers are services that broadcast a pre-programmed transaction if they detect that one of their client’s channels is being closed using an older state; this allows their clients to go offline without risking a loss of funds." Eltoo * From Bitcoin Optech (as of 12-2019): "''Eltoo'''' is a proposed enforcement layer for LN that allows any later channel state to replace any earlier channel state. Although eltoo can be used with a penalty mechanism similar to the one used with existing LN channels, eltoo doesn’t need the penality mechanism in order to be secure.'' If eltoo is used without a penalty mechanism, there’s no harm in publishing an old state, except that it costs transaction fees to publish. This makes it less dangerous to try to restore an LN node from a backup after a sudden failure or some other problem. It also makes it much simpler for three or more parties to open a single LN channel together, enabling features such as channel factories. Another consequence of LN channels without penalties is that LN nodes using eltoo only need to store the latest state. For certain devices that lack large amounts of persistent storage (for example, hardware wallets), they may not be able to store enough data to effectively use penalty-based LN—but as long as they can store a few kB, they should be able to use eltoo-based LN." * From the Bitcoin Optech Newsletter #76 (11-12-2019): "Conner Fromknecht started a thread asking what data watchtowers would need to store for eltoo and how that would affect the scalability of watchtowers or the privacy of their clients. One option would be for a watchtower to store only the latest update transaction. This is highly scalabale because it only requires a constant amount of storage per channel, and it’s secure because only the final settlement transaction can spend from the final update transaction. The offline node can broadcast the settlement transaction whenever it next comes online, even if that is months or years later. An alternative mechanism discussed would be for the watchtower to also store the settlement transaction. This could provide additional safety in case the node lost all data while it was offline by sending funds to the node’s desired withdrawal address (such as an address in its cold wallet). However, it would increase the storage requirements for watchtowers and, worse, the obvious way to implement it would significantly reduce user privacy by giving watchtowers enough data to learn details about previous payments made in the user’s payment channels. Some participants in the thread discussed ways to obtain the safety benefits while mitigating the privacy loss, although no clear conclusion was reached in the thread as of this writing." Critiques * Mikhail Nikulin; co-founder, CTO of Lykke tried out a Lightning Network kinda version on Lykke itself and now claims that it won't work due to fees for opening channels. * This (overall positive post) on LN by BitFury also listed a couple con's # "In the 2018 research paper, How to Charge Lightning, the author states that one of the key unknowns is what economic effect, if any, the Lightning Network will produce on the bitcoin fee market. “As the block reward in bitcoin declines (halving every four years), the reliance on fees increases and these must suffice to pay for enough mining by honest participants,” the report reads. The 28-page study found that, while the Lightning Network does in fact allow a greater number of transactions to pass through the system, that doesn’t necessarily mean higher fees to miners. The report’s authors conclude that this may lead to lower mining participation within the system. # In 2016, Dryja said that making a profit from the Lightning Network would be really hard, as it doesn’t have the similar economic benefit of mining the Bitcoin Blockchain and it is difficult to set up Lightning Network nodes. # In this post, Justin Goro, editor of the Social Revolution, states that while use of the Lightning Network will reduce blockchain fees substantially as competition on the blockchain declines, they won’t be reduced to zero. Lightning fees consist of opening and closing channels and fees for routing payments." * Antoine Riard posted (12-2019) to the Lightning-Dev mailing list a description of two attacks possible against LN users if they are eclipse attacked and the attacker delays the relay of blocks. * From CoinSpice (26-11-2019) which is a well known Lightning critic: "The Institute for Computer Science and Control (SZTAKI) in Hungary released, A Cryptoeconomic Traffic Analysis of Bitcoin’s Lightning Network. The 21-page study examined the second layer solution to the notorious scaling issues plaguing the world’s most popular cryptocurrency, BTC. They concluded the Lightning Network (LN) is economically irrational and has privacy shortcomings." * From CoinSpice (21-10-2019) "Researchers from The Hebrew University of Jerusalem and the University of Vienna published findings regarding how off-chain transaction networks can “introduce a new attack surface which is not well-understood today.” They analyzed “a novel Denial-of-Service attack which is based on route hijacking, i.e., which exploits the way transactions are routed and executed along the created channels of the network,” singling out the Lightning Network as being particularly vulnerable." Alternatives Apart from Layer 1 alternatives (such as Bitcoin Cash proposes) there are also other Layer 2 projects. * Omni Layer, one of the first second layers on Bitcoin, now mostly used for Tether. * Counterparty was once thought of as the second layer to build upon. * Teechan, a Lightning Network alternative created by Emin Gun Sirer. Team * Blockstream hired Rusty Russell, a well-known developer famous for his work on Linux kernel, to develop an implementation of the Bitcoin Lightning Network * Joseph Poon, co-author Category:Companies/Organisations